Thursday, 3 May 2012

Argos: the writing is on the wall-chart…?

Home Retail Group's shares were down 13% yesterday, partly because of uncertainty about its ability to revive the current Argos model, combined with a decision to forgo the payment of a final dividend, and especially a fall of 9% in like-for-like sales at Argos….

As you know, investors rely on a combination of rise in share price and dividend in order to compare alternative investments. Faced with a two-thirds fall in share price, a company would normally offer a generous dividend to compensate and retain shareholders.
But not when the company has already used available capital of £150m to buy back its shares, all to no avail…..

The Guardian’s Nils Pratley gives a number of reasons for Home Retail to be cautious in 2010-2011: the group's return on capital had fallen for three years in a row, along with operating profits, as had Argos' like-for-like sales, and a chart that says it all....

Future of the catalogue-showroom format?
Another Guardian article quotes retail analyst Nick Bubb as saying that the catalogue-showroom format had "died a painful death" everywhere else in the world barring the UK. "In the US, the discount stores such as Walmart and the online giants like Amazon destroyed long ago the convenience and range advantage of the catalogue showroom. Is it only a matter of time before the same pressures prevail in the UK?"

It is obvious that Argos is in trouble because of its categories moving online, and increasing competition from other “click and collect” services. Faced with this scenario, it would be logical to radically cut the capital base ( i.e. close 50%+ of the stores). Instead the company plan to close but 10 stores in the coming year.

On balance, Argos needs to radically reform its business model, and suppliers with a heavy dependence on the company need to conduct several what-ifs on possible options for their categories in these unprecedented times, fairly quickly…

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Blog Contributor

Brian MooreGlobal Retail Consultant & CEO of EMR-NAMNEWS Ltd.

Over the past 30 years Brian has conducted a wide variety of consultancy and training projects (Trade Marketing, Finance, Key Account Management, Category Management, Global Customer Planning and Management) for FMCG clients in the UK, and the around the world. Brian's industry insights are also published in a number of leading trade magazines.